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The pricing and reimbursement environment may change in the future and become more challenging as a result of any of several possible regulatory developments, including policies advanced by the US government, new healthcare legislation or fiscal challenges faced by government health administration authorities. Specifically, there have been a number of legislative and regulatory proposals and initiatives to change the healthcare system in ways that could affect our ability to profitably sell any diagnostic products we may develop and commercialize. Some of these proposed and implemented reforms could result in reduced reimbursement rates for our diagnostic products from governmental agencies or other third-party payors, which would adversely affect our business strategy, operations and financial results.

The US Patient Protection and Affordable Care Act of 2010 (as amended by the Health Care and Education Reconciliation Act of 2010), or ACA, made substantial changes to the current system for paying for healthcare in the United States. For example, beginning in 2013 through December 31, 2015, each medical device manufacturer was required to pay sales tax in an amount equal to 2.3% of the price for which such manufacturer sells its medical devices that are listed with the FDA. The medical device tax has been suspended for 2016 and 2017, but is scheduled to return beginning in 2018. Although the FDA has issued draft guidance that, if finalized, would regulate certain LDTs as medical devices, none of our LDTs, such as our ConfirmMDx and SelectMDx tests, are currently listed with the FDA. We cannot assure you that the tax will not apply to services such as ours in the future. Other significant measures contained in the ACA include, for example, coordination and promotion of research on comparative clinical effectiveness of different technologies and procedures, initiatives to revise Medicare payment methodologies, such as bundling of payments across the continuum of care by providers and physicians, and initiatives to promote quality indicators in payment methodologies. In addition, the ACA establishes an Independent Payment Advisory Board, or IPAB, to reduce the per capita rate of growth in Medicare spending. The IPAB has broad discretion to propose policies to control healthcare expenditures for consideration by Congress. If Congress fails to act on such proposal(s) and does not pass alternative legislation achieving similar savings, the Secretary of the US Department of Health and Human Services is required to implement the IPAB’s proposal(s). IPAB proposals may have a negative impact on payment rates for services, including ConfirmMDx

In addition to the ACA, other recent legislative changes have been proposed and adopted in the United States since the ACA was enacted. Recent legislative changes specific to coverage and reimbursement of laboratory tests are addressed above. Healthcare legislative reforms affecting providers generally include the US Budget Control Act of 2011, which, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. On April 1, 2013, the cuts to the federal budget resulting from sequestration were implemented, requiring a 2% cut in Medicare payment for all services, including our diagnostic tests. These cuts will remain in effect through 2024 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayor Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to providers such as hospitals, imaging centers and cancer treatment centers, and increased the government’s statutory recovery period for overpayments to providers from three to five years. Congress is also considering major changes to the way in which Medicare pays for services under the Physician Fee Schedule. State legislation on reimbursement applies to Medicaid reimbursement and Managed Medicaid reimbursement rates within that state. Some states have passed or proposed legislation that would revise reimbursement methodology for clinical laboratory payment rates under those Medicaid programs. In October 2011, CMS approved California’s plan to reduce certain Medi‑Cal payments by 10% retroactive to June 1, 2011. In February 2012, Medi‑Cal began the recoupment process by sporadically adjusting payments on new claims. According to the California Department of Health Care Services, or DHCS, the cut applies to various healthcare providers and outpatient services including laboratory services with certain exceptions. Moreover, state legislation required DHCS to develop a new rate-setting methodology for clinical laboratories and laboratory services that is based on the average of the lowest prices other third-party payors are paying for similar services, and to implement an additional 10% reduction, effective July 1, 2012 through June 30, 2015, to payments for clinical laboratory and laboratory services. DHCS has developed and CMS has approved the new rate methodology, which involves the use of the range of rates that fell between zero and 80% of the calculated California Medicare rate and the calculation of a weighted average (based on units billed) of such rates. Effective July 1, 2015, this new methodology was implemented by DHCS. Although recent changes to reimbursement methodology in states outside of California have not materially changed the payment rate for our tests, we cannot be certain that these or future changes will not affect payment rates in the future.

Federal and state budgetary limitations and changes in healthcare policy, such as the creation of broad limits for diagnostic products could substantially diminish the sale, or inhibit the utilization, of future diagnostic tests, increase costs, divert management’s attention and adversely affect our ability to generate revenue and achieve profitability. Additionally, on several occasions, the US Congress has considered imposing a 20% co-insurance amount for clinical laboratory services, which would require beneficiaries to pay a significant portion of the cost of their clinical laboratory testing. Although that requirement has not been enacted at this time, Congress could decide to impose such an obligation at some point in the future, which would make it more difficult for us to collect adequate reimbursement for, and increase use of, our diagnostic test.

These laboratory-specific changes and other non-laboratory specific changes in laws, regulations, payor policies or contracting arrangements with payors may adversely affect coverage or

reimbursement for our testing solutions, which may decrease our revenue and adversely affect our results of operations and financial condition. We also cannot predict whether future healthcare initiatives will be implemented at the federal or state level or in countries outside of the US in which we may do business, or the effect any future legislation or regulation will have on us. The taxes imposed by new legislation, cost reduction measures and the expansion in government’s role in the U.S. healthcare industry may result in decreased profits to us, lower reimbursements by payors for our products or reduced medical procedure volumes, all of which may adversely affect our business, financial condition and results of operations. In addition, sales of our tests outside the US make us subject to international regulatory requirements and cost‑reduction measures, which may also change over time.

WE CONDUCT BUSINESS IN A HEAVILY REGULATED INDUSTRY, AND CHANGES IN REGULATIONS OR